Version 1
: Received: 24 September 2018 / Approved: 25 September 2018 / Online: 25 September 2018 (04:13:32 CEST)
How to cite:
Cai, J.; Li, F.; Petsas, I. The R^2 and the Seven Events in Hong Kong: A New Look at Return Synchronicity and Price Efficiency. Preprints2018, 2018090474. https://doi.org/10.20944/preprints201809.0474.v1
Cai, J.; Li, F.; Petsas, I. The R^2 and the Seven Events in Hong Kong: A New Look at Return Synchronicity and Price Efficiency. Preprints 2018, 2018090474. https://doi.org/10.20944/preprints201809.0474.v1
Cai, J.; Li, F.; Petsas, I. The R^2 and the Seven Events in Hong Kong: A New Look at Return Synchronicity and Price Efficiency. Preprints2018, 2018090474. https://doi.org/10.20944/preprints201809.0474.v1
APA Style
Cai, J., Li, F., & Petsas, I. (2018). The R^2 and the Seven Events in Hong Kong: A New Look at Return Synchronicity and Price Efficiency. Preprints. https://doi.org/10.20944/preprints201809.0474.v1
Chicago/Turabian Style
Cai, J., Fengyun Li and Iordanis Petsas. 2018 "The R^2 and the Seven Events in Hong Kong: A New Look at Return Synchronicity and Price Efficiency" Preprints. https://doi.org/10.20944/preprints201809.0474.v1
Abstract
This paper identifies a dilemma in the relationship between R^2 and price efficiency: After comprehensively studying the R^2 change around 7 well-known corporate events, neither the traditional understanding of R^2 as price inefficiency, nor the behavioral way of R^2 as price efficiency can explain the observed R^2 change around the events. We adopt an alternative methodology to replace the standard difference-in-difference regression and directly decompose the R^2 change. We find that, due to the endogeneity of events, the changes of R^2 are over-estimated. We further propose that in the event study setting, the R^2 change may be simply the consequence of the inflow/outflow of some trend-chasing investors, and it may be detached from price (in) efficiency. Empirical evidences are consistent with this hypothesis.
Keywords
price efficiency; R2; Hong Kong stock market data
Subject
Business, Economics and Management, Finance
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.